Tuesday, October 6, 2015

New Student Loan Servicing Guidelines Mandated by CFPB

As of 2015, one in seven student loan borrowers — or about 14 percent — defaulted on their student loans within three years of starting the repayment period after college was reported by the Chicago Tribune.

As the student loan debt seems to have ballooned out of control from 600 billion in 2006 to $1.2 trillion in 2015, the Consumer Financial Protection Bureau (CFPB) has recently reported widespread servicing failures on both the federal and private student loan borrowers. As the CFPB noted, loan service providers play a vital role in providing borrowers key information about payments and account information. Millions of student borrowers reported to the CFPB the illegal servicing practices employed and the failure to provide the most basic level of services necessary to meet borrower's needs.

Much of this comes as no surprise to most. So, will the CFPB take action? If so, will it be enough? First, to make the loan process more simplified, the Department of Education in Fall 2016 will open registration three months earlier to allow parents and students to have a true cost of attending college while still in high school. In Sept 2015, the CFPB released the Joint Statement of Principles on Student Loan Servicing, which outlined new guidelines and recommendations that all loan service providers must abide. These recommendations were formed to create consistency, to hold service providers accountable and to help borrowers be more informed about their debt obligations. At the heart if the Joint Statement is information transparency regarding payment terms that consumers have come to expect under other regulations subject to the Consumer Credit Protection Act. Transparency has come along way in terms of disclosure with credit cards, for instance.

Improving disclosure in an understandable and meaningful way is not to be understated. It is one vital step by the CFPB in its advocating for student borrowers, all of whom can be affected by unfair servicing practice and which will now be curtailed.